After the demise of TradeSports, questions (re-)surface about the viability of InTrade.

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My post about the sudden closure of TradeSports was the #2 most downloaded webpages, yesterday &#8212-even though that post was published late yesterday. And this morning, I am receiving tons of e-mails from the InTrade and TradeSports traders (they are often the same people).

My reasoning:

  1. InTrade is the twin site of TradeSports.
  2. The closure of TradeSports was sudden.
  3. The TradeSports owners have closed shop less than 2 months before the SuperBowl &#8212-the biggest $$$ drawer.
  4. Now that the 2008 US presidential elections are over, the InTrade heyday is over. No more liquidity. No more media coverage. See you in 2010 and 2012.
  5. If TradeSports couldn&#8217-t survive the Unlawful Internet Gambling Enforcement Act of 2006, I don&#8217-t see how a lean InTrade could do.
  6. InTrade CEO John Delaney is not a truthful person. It is unlikely that any statement from him about the viability of InTrade should be taken seriously.
  7. Midas Oracle used to received many daily server requests from the InTrade-TradeSports team in Ireland. The recent web stats show a sudden drop. This might signal that some key employees are in vacation &#8212-or have been laid off.
  8. UPDATE: They seem now unable to expire a contract in the evening, Irish time.

TAKEAWAY:

  • The InTrade traders should prepare themselves for the worse &#8212-the sudden closure of InTrade.

Chris F. Masse

The New York Times on InTrades US political election prediction markets

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The NYT writers discusses 2 (different?) issues.

#1. There was market arbitrage opportunies in the recent past between InTrade and BetFair &#8212-unlike 4 years ago, and contrary to the laws of economics.

– The price of the Barack Obama event derivative was cheaper on InTrade than on BetFair and the Iowa Electronic Markets. Conversely, the price of the John McCain event derivative was more expensive on InTrade than on BetFair and the Iowa Electronic Markets.

#2. The NYT writer reports (without linking to it) the findings of the InTrade investigation about the behavior of their unnamed &#8220-institutional investor&#8221-.

– InTrade CEO John Delaney suggests that that institutional investor:

  1. might operate on InTrade at specific times where it might not be able to find liquidity on BetFair and/or IEM-
  2. might be a bookmaker willing to hedge its risks on a prediction exchange (a.k.a. betting exchange).

– Justin Wolfers&#8217- PHD student remarks that that institutional investor is not making an effort to shop around for the best prices, within each InTrade political prediction market.

RELATED: See the comments on Midas Oracle here, here, here, and here.

TradeFair was first branded as a serious financial prediction exchange, but it didnt work out, and TradeFair is now actually an operator that applies gambling (not betting) to the financial markets.

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Take a look at their ad:

Three remarks:

  • They got carried away from the prediction market approach (which, unlike InTrade, they never understood fully, anyway).
  • This gambling approach of the marketing of the prediction markets is very interesting in terms of potential revenue growth. I encourage InTrade, TradeSports, BetFair, NewsFutures and HubDub to adopt it.
  • However, it remains to be seen whether TradeFair is the right venue for gambling. TradeFair was supposed to be a serious financial prediction exchange (the British equivalent of HedgeStreet), and it is now the online equivalent of Macao or Las Vegas. Hummm&#8230- Will these 2 different worlds mix well together? Could La Callas sell pork sausages? Could Yehudi Menuhin sell used condoms?
  • And I won&#8217-t mention the issue of problem gambling, which I predict will be made worse thanks to TradeFair Hi &amp- Lo and BetFair Arcades.

Once the previous bet is resolved, you can start off anew with another 5-minute bet on the FTSE &#8212-from the level that was the basis for the settlement of the previous bet.

InTrade has surpassed BetFair and TradeSports (and the Iowa Electronic Markets, too).

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InTrade&#8217-s PageRank is now 7 / 10 &#8212-while all the other major prediction market firms are at 6 / 10.

  1. It shows that the prediction market approach is paying off. Do provide journalist-friendly objective probabilistic predictions (expressed in percentages &#8211-not those fucking decimal odds), and the media will link to you, thanks to all the free-market economists who love your model and act as unpaid publicists for you. Make sure your website can resist under heavy traffic loads on Election Day, and during the occasional days where important news break. Then, milk out all this free publicity. Run registration ads allover your exchange website to attract new traders. Make money. Invest in IT &#8212-but don&#8217-t let the IT maniacs complicate your prediction exchange too much (as BetFair did).
  2. Long-term, the InTrade model (based on the prediction market approach) should be more profitable, in theory. Because of legal impediment, InTrade is not as profitable as it should be, alas.

All against the BetFair premium charges

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Excellent analysis from the &#8220-Punt&#8221- blogger.

Serial bet winners are accused (that&#8217-s the word) to withdraw money from the BetFair machine, compelling BetFair to attract new money from newbies at a high marketing cost, and thus BetFair has decided to tax those serial bet winners.

I wonder what a Harvard or Wharton MBA would think of this reasoning.

It is my understanding that, in the betting and gambling business, you are always trying to attract new blood to make up for the disillusioned gamblers that you are losing on a daily basis.

Am I correct, folks?

Why don&#8217-t BetFair raise moderately the trading fees for everybody, or try to reduce the cost of the BetFair IT architecture by slashing out what has been unnecessary added by their IT maniacs?

Previously: BetFair impose new “Premium Charges”, and their very active traders are up in arms. – 2008-09-09

2008 US Presidential and Congressional Elections Prediction: The Sarah Palin effect has partially evaporated, but its remains point to a close race, come Tuesday, November 4, 2008.

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#1. Explainer On Prediction Markets

Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out&#8230- Intelligence in, intelligence out&#8230-

A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.

Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.

More Info:

– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts

– Prediction Market Science

– The Midas Oracle Explainers On Prediction Markets

– All The Midas Oracle Explainers On Prediction Markets

#2. Objective Probabilistic Predictions = Charts Of Prediction Markets

Put your mouse on your selected chart, right-click, and open the link in another browser tab to get directed to the prediction market page of your favorite exchange.

2008 US Elections

InTrade

2008 US Electoral College

2008 Electoral Map Prediction = InTrade – Electoral College Prediction Markets = Probabilistic predictions for the 2008 US presidential elections based on market data from InTrade = electoralmarkets.com

– This is a dynamic chart, which is up to date. Click on the image, and open the website in another browser tab to get the bigger version.

ProTrade vs. Sports Derivative Exchange

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I asked Chris Hibbert whether they are &#8220-exchanges&#8221-.

Chris Hibbert:

It looks like it from a cursory glance. In both cases, you can buy and sell, and the prices appear to be set by market interactions rather than institutional fiat. They both have a feedback mechanism based on “dividends” produced by on-field performance. ProTrade has a sophisticated formula that takes into account the players’ contribution to a winning season. SDX seems to base their dividends purely on wins and losses. The latter is easier to understand, and probably closer to the way most fans think about things. I think ProTrade is justified in believing they are closer to capturing the individual athlete’s contribution.

There’s also the difference in betting on players or teams. I think both might be helped by offering bets based on both players and teams. But until they cover hockey, I won’t spend a lot of time there. I don’t want to have to start following one of the major sports in order to bet in these play money markets.

ProTrade has a market maker, and SDX uses book orders.

External Links:

– ProTrade

– Sports Derivative Exchange

– Zocalo (the open-source software for enterprise prediction markets, coded by Chris Hibbert)

UPDATE: The SDX co-founder has a comment.